Last week the think tank OECD warned that Britain was back in recession: the contraction in the final quarter of 2011 would be followed by another between January and March.
But the latest data have been surprisingly good. The purchasing managers’ index (PMI) of activity in the manufacturing sector rose to a ten-month high of 52.1 in March, above the 50 mark that separates growth from contraction. The PMI for the construction sector has jumped to a 21-month high; the one covering the services sector (worth 75% of the economy) also strengthened last month.
A British Chamber of Commerce survey said that small and medium-sized businesses registered a bounce in both domestic and foreign orders and sales last quarter. A survey of financial services firms also pointed to stronger hiring in the sector. House prices ticked up last month and retail sales held unexpectedly steady.
What the commentators said
The data have been “like London buses”, said Fxpro.com. “For what seems like an eternity there were no good news on the economy whatsoever”, then several encouraging stories come along at once. Put all three PMI surveys together, and they point to the strongest quarter in a year, noted Chris Williamson of Markit.
The upshot is that far from falling back into recession, the economy grew by up to 0.5% last quarter, he reckoned. An uptick in business confidence in both construction and services bodes well, and in the latter sector, growing confidence is “encouraging firms to take on more staff”, which is especially good news.
Manufacturing, meanwhile, “is managing to keep its head above water”, as David Tinsley of BNP Paribas put it – despite the drag from Europe. The survey suggested that manufacturers have managed to make new sales in Africa, Asia and Japan, in order to become less reliant on Europe. We can also be “cautiously cheerful” about the bigger picture, said Larry Elliot in The Guardian. The falling pound has shrunk the trade deficit. Production is moving back to the UK from overseas, and while our manufacturing sector is now only worth 10% of GDP, “much of what remains is actually top-notch”.
However, “talk of green shoots is premature”, as Philip Aldrick pointed out on Telegraph.co.uk. The recovery remains historically weak, and ongoing headwinds include oil prices, the eurozone crisis and tight credit. Another problem is that unexpectedly high inflation could maintain the squeeze on real incomes and continue to hamper consumption. Still, “feeble growth”, said Allister Heath in City AM, is “much better than a double-dip”.